What is a smart contract?

Just like any contract, smart contracts lay out the terms of an agreement or deal. What makes smart contracts "smart," however, is that the terms are established and executed as code running on a blockchain, rather than on paper sitting on a lawyer's desk. Smart contracts expand on the basic idea behind Bitcoin — sending and receiving money without a "trusted intermediary" like a bank in the middle — to make it possible to securely automate and decentralize virtually any kind of deal or transaction, no matter how complex. And because they run on a blockchain like Ethereum, they offer security, reliability, and borderless accessibility.

Why are smart contracts important?

Smart contracts allow developers to build a wide variety of decentralized applications. They're used in everything from new financial tools to logistics and game experiences, and they're stored on a blockchain like any other cryptographic transaction. Smart contracts utilization is crucial for a future where work is done without intermediaries. Because of their nature, smart contracts are immutable and cannot be changed or deleted. They are also self-executing, meaning that they automatically execute the terms of the contract once the conditions are met.

In traditional finance, swapping currencies is expensive and time consuming. And it isn't easy or secure for individuals to loan out their liquid assets to strangers on the other side of the world. But smart contracts make both of those scenarios, and a vast variety of others, possible.